A. Arbitration Clauses in North Carolina Personal Auto Policies

North Carolina insurance companies were quick to jump on the arbitration bandwagon, particularly to resolve disputes concerning UM/UIM coverage. For at least 45 years, personal auto policies in North Carolina have contained some type of arbitration provision for UM coverage,[1] and for nearly as long, arbitration provisions have also been included in policies offering UIM coverage.[2]

Over the last decade, insurance carriers have inserted, and our courts have permitted, arbitration clauses into other types of insurance coverage policies as well. For instance, the standard North Carolina personal auto policy now includes arbitration provisions for certain first- and third-party property damage coverage, as well as for medical payments (“Med Pay”) coverage. The insertion of these clauses reflects an effort by the insurance industry to use arbitration clauses as a tool to reduce or avoid litigation costs. While this effort appears to benefit all parties involved, consumers suffer. Arbitration clauses provide consumers fewer rights for redress and, therefore, erode a consumer’s bargaining power. Recent attempts by insurance companies to change current UM/UIM arbitration provisions—from ones that provide for a unilateral trigger by the insured to ones that require mutual consent between the insured and insurer—demonstrate that insurers have no problem sacrificing consumer rights in favor of expediency.

While arbitration clauses present in many varieties, three variables significantly affect the rights and remedies of the parties. These variables concern whether the arbitration provision: (1) can be triggered by one party (“unilateral”), either party (“bilateral”), or requires both parties’ consent (“mutual”); (2) is the exclusive means of resolving disputes (“mandatory”) or can be chosen among other remedies (“elective”); (3) leads to awards that are legally enforceable (“binding”) or ones that are not (“non-binding”). Arbitration provisions found in standard policies will be used to illustrate these variables.